OVDP Attorney Fees – Be Sure to Ask the Right Questions

OVDP Attorney Fees – Be Sure to Ask the Right Questions

OVDP Fee Quote From a CPA Seems Low? Here’s Why

If you received an OVDP Fee Quote from a CPA or Attorney that seems…Too Low, you should be careful.

That is not to say you should resign yourself to mortgaging your house for representation, but there are many CPAs and Attorneys who see a frightened human being as little more than a “Mark” or “Target.”

They will provide artificially low fee quotes to bait you in, only to request more money down-the-line.

We Take OVDP Representation Very Seriously

The main takeaway from this article is that you understand the risks and pitfalls of entering either over OVDP or the Streamlined Offshore Disclosure Program unprepared.

We are passionate about representing individuals in offshore voluntary disclosure matters, and feel horrible when a client calls us after having hired an inexperienced Attorney or CPA who either did a sloppy job, charged them more money than they agreed upon, and/or is overall not providing the level of representation a person deserves.

Offshore Disclosure – Attorney vs. CPA

The only way to really know if the IRS believes you are Non-Willful is either to outlive the Statute of Limitations or survive an Audit.

When a person is audited under the Streamlined Program or wants to opt out of OVDP, there are significant risks, which could include a criminal investigation and possible issues involving a work visa or legal permanent resident status – these are not issues to play around with. And, because many of our clients who came to us from CPA firms have let us know they had been misinformed by a CPA as to the difference between what services a CPA can provide, and the scope of the Accountant-Client vs. Attorney-Client privilege, we will use this blog post to provide a summary of the difference between the two forms of representation.

OVDP is Quasi-Criminal

OVDP is the Offshore Voluntary Disclosure Program. It is a program designed for individuals who are willful (aka knowingly evaded or avoided filing taxes or reporting foreign income). If you are in OVDP and want to try to opt-out to avoid a larger penalty due to mitigating factors (or some inexperienced CPA or Attorney goaded you into OVDP when you were actually non-willful) you will be dancing around issues involving tax fraud and tax evasion, which are “criminal” in nature; thus, you will want an attorney to represent you throughout the entire submission process.

Attorney-Client Privilege

There is no attorney-client privilege between a Client and CPA, and while there is some form of an Accountant-Client privilege, it pales in comparison to the level of confidentiality contrast that you receive with an attorney. Since your freedom is on the line, you want (Read: Need) that confidentiality.

Be Cautious of Online False Advertising

Since CPA’s cannot offer the attorney-client privilege, some CPAs have been known to steal attorney ad copy and misrepresent their credentials (aka advertising as if they were an attorney or using the word “Law,” “Lawyer,” “Esquire,” or “Attorney” in their domain name) and not making it clear to the potential client that they are not really an attorney – or that the attorney-client privilege does not apply.

We know this, because often times when a potential client calls us they will let us know that they spoke to another tax attorney (which research reveals is actually not an attorney but a CPA) and that their fees are significantly lower. (Read: just because their domain name used “Tax Law” does not make them an Attorney)

With that said, you get what you pay for as detailed below.

5 Reasons to Choose an Attorney for OVDP

Here are five reasons why you have to be careful if you are not going to use an attorney:

Attorney-Client Privilege

The Attorney-Client privilege is fascinating. It is an incredible privilege that allows an individual to be completely truthful (aside from telling your attorney that your about to go kill someone or inflict serious bodily harm) with your attorney. This allows the attorney to most effectively represent a client by knowing the facts and circumstances of the case. It also allows the Client to be ‘honest’ with the attorney, without fear that the attorney is going to have to tell the police or IRS special agents what the client may have told the attorney.

You do not receive this privilege with the CPA. There is a accounting-client privilege available between the CPA and client, but it does not rise anywhere near to the level of an attorney client privilege.

CPAs are Not Trained in Legal Analysis and Representation

Attorneys are required to complete an additional three years of law school as well as pass the bar exam. Moreover, many attorneys in the area of tax law achieve a Masters of Tax Law as well as earn additional credentials such as Enrolled Agent. An Enrolled Agent is a credential earned from the IRS (the reason most people have not heard of the credential is because it is relatively difficult to obtain and required the passing of a 3-part IRS Administered “Enrolled Agent” exam).

While an Enrolled Agent status reflects extensive knowledge in Tax Law, many CPAs never practice in the realm of tax.

Many CPAs are highly qualified and we have the utmost respect for most CPAs (we use CPA’s in situations that require very complex forensic accounting and related matters). With that said, since OVDP and the Streamlined Program require comprehensive legal evaluation and analysis, along with a strong understanding of the legal ramifications involving willful versus non-willful, it is important to have an attorney representing you throughout the process.

Most CPAs have no Audit, Litigation or Trial Experience

Whether you decide to enter OVDP and then opt-out (a decision in which you do not have to make until the very end of the process) or enter the Streamlined Program (in which you may be audited), it is important to have a representative who has been through audits and/or litigation and trials in the past. Most CPAs have never seen the inside of Tax Court and/or cannot practice as an attorney — and therefore do not have any litigation experience.

As such, chances are without this experience it will not be in the best position two prepare the certification statement and/or represent you before the IRS.

Improper Advice (Designed to Artificially Reduce Their Fees)

When we are contacted by potential clients who have already spoken to CPAs beforehand, they are generally misguided. Since the CPAs are trying to keep the cost down in order to compete with the attorneys and the complete lack of an attorney-client privilege, the information they are providing to potential clients is often wrong.

Examples of the common misinformation we hear include:

Low Audit Risk: “You will never be audited under the streamlined program.”

PFIC Form 8621: “Don’t worry about form 8621, there are no penalties if you don’t file it”

Foreign Retirement: “It sounds like a 401(k), so it is tax-deferred in the US as well and doesn’t need to be reported.”

The above referenced examples all have one common theme: the CPA is trying to reduce the fees to obtain your business by limiting the amount of work and providing inaccurate information regarding the amount of work that needs to be done. The fact of the matter is:

It is impossible to know if you will be audited

Failing to file Form 8621 can lead to your Tax Return remaining open indefinitely; and

The general rule is Foreign Retirement does not receive the same tax deferred treatment as a 401K.

Just Hire an Attorney When you are Audited

Sure, you can start out by hiring a CPA, paying them $10,000+ in fees to handle the program. But, if you are audited down the line and/or decide you’d like to opt-out, you will want an attorney to represent you because you want the attorney-client privilege — as well as a trained legal professional having your back during situations which could turn into quasi-criminal investigations.

If you wait to hire an attorney down the line, just know that the attorney is going to have to go back and learn the entire file, and so the fees the attorney would charge at that time will be significantly higher then if you would have hired an attorney from the beginning to handle these matters for you, due to the lack of Attorney-Client privilege (a fact the CPA does not usually tell you upfront).

Want to Learn More about Offshore Voluntary Disclosure?

Offshore Voluntary Disclosure Tax law is very complex. There are many aspects that go into any particular tax calculation, including the legal status, marital status, business status and residence status of the taxpayer.

When Do I Need to Use Voluntary Disclosure?

Voluntary Disclosure is for individuals, estates, and businesses who are out of compliance with the IRS and the Department of Treasury. What does that mean? It means that if you are required to file a U.S. tax return and you don’t do so timely, then you are out of compliance.

If the IRS discovers that you are out of compliance, you may become subject to extensive fines and penalties – ranging from a warning letter all the way up to tax liens, tax levies, seizures, and criminal investigations. To combat this, you can take the proactive approach and submit to Voluntary Disclosure.

Golding & Golding – Offshore Disclosure

At Golding & Golding, we limit our entire practice to offshore disclosure (IRS Voluntary Disclosure of Foreign and U.S. Assets). The term offshore disclosure is a bit of a misnomer, because the term “offshore” generally connotes visions of hiding money in secret places such as the Cayman Islands, Bahamas, Malta, or any other well-known tax haven jurisdiction – but that is not the case.

In fact, any money that is outside of the United States is considered to be offshore; the term offshore is not a bad word. In other words, merely because a person has money offshore (a.k.a. overseas or in a foreign country) does not mean that money is the result of ill-gotten gains or that the money is being “hidden.” It just means it is not in the United States. Many of our clients have assets and bank accounts in their homeland countries and these are considered offshore assets and offshore bank accounts.

The Devil is in the Details…

If you do have money offshore, then it is very important to ensure that the money has been properly reported to the U.S. government. In addition, it is also very important to ensure that if you are earning any foreign income from that offshore money, that the earnings are being reported on your U.S. tax return.

It does not matter whether your money is in a country that does not tax a particular category of income (for example, many Asian countries do not tax passive income). It also does not matter if you are a dual citizen and/or if that money has already been taxed in the foreign country.

Rather, the default position is that if you are required to file a U.S. tax return and you meet the minimum threshold requirements for filing a U.S. tax return, then you have to include all of your foreign income. If you already paid foreign tax on the income, you may qualify for a Foreign Tax Credit. In addition, if the income is earned income – as opposed to passive income – and you meet either the Bona-Fide Resident Test or Physical-Presence Test, then you may qualify for an exclusion of that income; nevertheless, the money must be included on your tax return.

What if You Never Report the Money?

If you are in the unfortunate position of having foreign money or specified foreign assets that should have been reported to the U.S. government, but which you have not reported — then you are in a bit of a predicament, which you will need to resolve before it is too late.

As we have indicated numerous times on our website, there are very unscrupulous CPAs, Attorneys, Accountants, and Tax Representatives who would like nothing more than to get you to part with all of your money by scaring you into believing you are automatically going to be arrested, jailed, or deported because you have unreported money. While that is most likely not the case (depending on the facts and circumstances of your specific situation), you may be subject to extremely high fines and penalties.

Moreover, if you knowingly or willfully hid your foreign accounts, foreign money, and offshore assets overseas, then you may become subject to even higher fines and penalties…as well as a criminal investigation by the special agents of the IRS and/or DOJ (Department of Justice).

Getting into Compliance

There are five main methods people/businesses use to get into compliance. Four of these methods are perfectly legitimate as long as you meet the requirements for the particular mechanism of disclosure. The fifth alternative, which is called a Quiet Disclosure a.k.a. Silent Disclosure a.k.a. Soft Disclosure, is ill-advised as it is illegal and very well may result in criminal prosecution.

We are going to provide a brief summary of each program below. We have also included links to the specific programs. If you are interested, we have also prepared very popular “FAQs from the Trenches” for FBAR, OVDP and Streamlined Disclosure reporting. Unlikes the technical jargon of the IRS FAQs, our FAQs are based on the hundreds of different types of issues we have handled over the many years that we have been practicing international tax law and offshore disclosure in particular.

After reading this webpage, we hope you develop a basic understanding of each offshore disclosure alternative and how it may benefit you to get into compliance. We do not recommend attempting to disclose the information yourself as you may become subject to an IRS investigation insofar as you will have to answer questions directly to the IRS, which you can avoid with an attorney representative.

If you retain an attorney, then you will get the benefit of the attorney-client privilege which provides confidentiality between you and your representative. With a CPA, there is a relatively small privilege which does provide some comfort, but the privilege is nowhere near as strong as the confidentiality privilege you enjoy with an attorney.

Since you will be dealing with the Internal Revenue Service and they are not known to play nice or fair – it is in your best interest to obtain an experienced Offshore Disclosure Attorney.

OVDP is the Offshore Voluntary Disclosure Program — a program designed to facilitate taxpayer compliance with IRS, DOT, and DOJ International Tax Reporting and Compliance. It is generally reserved for individuals and businesses who were “Willful” (aka intentional) in their failure to comply with U.S. Government Laws and Regulations.

The Offshore Voluntary Disclosure Program is open to any US taxpayer who has offshore and foreign accounts and has not reported the financial information to the Internal Revenue Service (restrictions apply). There are some basic program requirements, with the main one being that the person/business who is applying under this amnesty program is not currently under IRS examination.

The reason is simple: OVDP is a voluntary program and if you are only entering because you are already under IRS examination, then technically, you are not voluntarily entering the program – rather, you are doing so under duress.

Any account that would have to be included on either the FBAR or 8938 form as well as additional income generating assets such as rental properties are accounts that qualify under OVDP. It should be noted that the requirements are different for the modified streamlined program, in which the taxpayer penalties are limited to only assets that are actually listed on either an FBAR or 8938 form; thus the value of a rental property (reduced by any outstanding mortgage) would not be calculated into the penalty amount in a streamlined application, but it would be applicable in an OVDP submission.

Under this program, the Internal Revenue Service wants to know all of the income that was generated under these accounts that were not properly reported previously. The way the taxpayer accomplishes this is by amending tax returns for eight years.

Generally, if the taxpayer has not previously reported his accounts, then there are common forms which were probably excluded from the prior year’s tax returns and include 8938 Forms, Schedule B forms, 3520 Forms, 5471 Forms, 8621 Forms, as well as proof of filing of FBARs (Foreign Bank and Financial Account Reports).

OVDP Penalties

The taxpayer is required to pay the outstanding tax liability for the eight years within the disclosure period – as well as payment of interest along with another 20% penalty on that amount (for nonpayment of tax). To give you an example, let’s pick one tax year during the compliance period. If the taxpayer owed $20,000 in taxes for year 2014, then they would also have to include in the check the amount of $4,000 to cover the 20% penalty, as well as estimated interest (which is generally averaged at about 3% per year). This must be done for each year during the compliance period.

Then there is the “FBAR/8938” Penalty. The Penalty is 27.5% (or 50% if any of the foreign accounts are held at an IRS “Bad Bank”) on the highest year’s “annual aggregate total” of unreported accounts (accounts which were previously reported are not calculated into the penalty amount).

For OVDP, the annual aggregate total is determined by adding the “maximum value” of each unreported account for each year, in each of the last 8 years. To determine what the maximum value is, the taxpayer will add up the highest balances of all of their accounts for each year. In other words, for each tax year within the compliance period, the application will locate the highest balance for each account for each year, and total up the values to determine the maximum value for each year.

Thereafter, the OVDP applicant selects the highest year’s value, and multiplies it by either 27.5%, or possibly 50% if any of the money was being held in what the IRS considers to be one of the “bad banks.” When a person is completing the penalty portion of the application, the two most important things are to breathe and remember that by entering the program, the applicant is seeking to avoid criminal prosecution!

What am I supposed to Report?

There are three main reporting aspects: (1) foreign account(s), (2) certain specified assets, and (3) foreign money. While the IRS or DOJ will most likely not be kicking in your door and arresting you on the spot for failing to report, there are significantly high penalties associated with failing to comply.

In fact, the US government has the right to penalize you upwards of $10,000 per unreported account, per year for a six-year period if you are non-willful. If you are determined to be willful, the penalties can reach 100% value of the foreign accounts, including many other fines and penalties… not the least being a criminal investigation.

Reporting Specified Foreign Assets – FATCA Form 8938

Not all foreign assets must be reported. With that said, a majority of assets do have to be reported on a form 8938. For example, if you have ownership of a foreign business interest or investment such as a limited liability share of a foreign corporation, it may not need to be reported on the FBAR but may need to be disclosed on an 8938.

The reason why you may get caught in the middle of whether it must be filed or not is due largely to the reporting thresholds of the 8938. For example, while the threshold requirements for the FBAR is when the foreign accounts exceed $10,000 in annual aggregate total – and is not impacted by marital status and country of residence – the same is not true of the 8938.

The threshold requirements for filing the 8938 will depend on whether you are married filing jointly or married filing separate/single, or whether you are considered a US resident or foreign resident.

Other Forms – Foreign Business

While the FBAR and Form 8938 are the two most common forms, please keep in mind that there are many other forms that may need to be filed based on your specific facts and circumstances. For example:

If you are the Beneficiary of a foreign trust or receive a foreign gift, you may have to file Form 3520.

If you are the Owner of a foreign trust, you will also have to file Form 3520-A.

If you have certain Ownerships of a foreign corporation, you have to file Form 5471.

And (regrettably) if you fall into the unfortunate category of owning foreign mutual funds or any other Passive Foreign Investment Companies then you will have to file Form 8621 and possibly be subject to significant tax liabilities in accordance with excess distributions.

Reporting Foreign Income

If you are considered a US tax resident (which normally means you are a US citizen, Legal Permanent Resident/Green-Card Holder or Foreign National subject to US tax under the substantial presence test), then you will be taxed on your worldwide Income.

It does not matter if you earned the money in a foreign country or if it is the type of income that is not taxed in the country of origin such as interest income in Asian countries. The fact of the matter is you are required to report this information on your US tax return and pay any differential in tax that might be due.

In other words, if you earn $100,000 USD in Japan and paid 25% tax ($25,000) in Japan, you would receive a $25,000 tax credit against your foreign earnings. Thus, if your US tax liability is less than $25,000, then you will receive a carryover to use in future years against foreign income (you do not get a refund and it cannot be used against US income). If you have to pay the exact same in the United States as you did in Japan, it would equal itself out. If you would owe more money in the United States than you paid in Japan on the earnings (a.k.a. you are in a higher tax bracket), then you have to pay the difference to the U.S. Government.

What do you do if you reside outside of the United States and recently learned that you’re out of US tax compliance, have no idea what FATCA or FBAR means, and are under the misimpression that you are going to be arrested and hauled off to jail due to irresponsible blogging by inexperienced attorneys and accountants?

If you live overseas and qualify as a foreign resident (reside outside of the United States for at least 330 days in any one of the last three tax years or do not meet the Substantial Presence Test), you may be in for a pleasant surprise.

Even though you may be completely out of US tax and reporting compliance, you may qualify for a penalty waiver and ALL of your disclosure penalties would be waived. Thus, all you will have to do besides reporting and disclosing the information is pay any outstanding tax liability and interest, if any is due. (Your foreign tax credit may offset any US taxes and you may end up with zero penalty and zero tax liability.)

*Under the Streamlined Foreign, you also have to amend or file 3 years of tax returns (and 8938s if applicable) as well as 6 years of FBAR statements just as in the Streamlined Domestic program.

When a Person, Estate, or Business is out-of-tax compliance for failing to report Foreign Income and/or Foreign Assets, the applicant has relatively few options for timely and safely getting into tax and foreign reporting compliance — before fines and penalties are issued.

While the most common options include the Offshore Voluntary Disclosure Program or the Streamlined Offshore Disclosure Program, there is another alternative. It is called making a Reasonable Cause submission.

Reasonable Cause Process

An individual should never attempt offshore disclosure without the assistance of a qualified attorney. With that said, it is even more important to ensure that if you are even considering a reasonable cause submission, that you do so only with the help of an attorney. That is because only with an attorney do you receive the benefit of the attorney-client privilege.

Unlike the Streamlined Program or OVDP where there are strict procedures to be followed, a reasonable cause submission is different. It should be noted that a person can submit a reasonable cause application for any number of different reasons; it is not limited only to offshore money and reporting foreign accounts. It should also be noted that there are potentially high risks and penalties associated with this Reasonable Cause process, so you have carefully weigh your options.

With a reasonable cause submission, the attorney will carefully evaluate and analyze the facts and circumstances of your case in detail. He or she should sit down with you either in person or via teleconference if you are non-local and assess the pros and cons of the potential submission in order to determine what the benefits and detriments may be to a reasonable cause disclosure. Thereafter the attorney will amend the returns, prepare the necessary forms, and draft a persuasive Reasonable Cause Letter.

At Golding & Golding, we are Tax Attorneys (with Masters of Tax Law) and Enrolled Agents credentialed by the IRS (Highest Credential awarded by the IRS), so we can handle your entire submission (Taxes, Legal, and Audit Defense) in-house, for a flat-fee.

Reasonable Cause Examples

If you were completely non-willful in your failure to disclosure and were unaware that there was any reporting requirement, then the thought of paying any penalty may sound absurd and you may consider Reasonable Cause as an alternative option.

Reasonable Cause is determined on a Case by Case basis in accordance with your specific facts and circumstances.

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OVDP & STREAMLINED SUCCESS!

- Successfully Represented Highly Compensated Earners in a Streamlined Program Disclosure with more than 175 Accounts.

- Successfully represented a non-willful client through the Streamlined Program, even though he had multiple accounts at "Bad Banks" including accounts in a Tax Haven jurisdiction.

- Successfully received notification from the IRS of no penalties being issued against a high-income earning family with more than 20+ foreign accounts worldwide, including India and Canada. Based on their specific facts and circumstances, we were able to submit them using the Reasonable Cause option.

- Successfully completed a multi-person comprehensive disclosure matter for a family with submissions involving both Offshore Disclosure and Reasonable Cause applications.

- Acceptance of a Streamlined Domestic Offshore Disclosure Program submission for a client with multiple accounts, which had several U.S. Taxpayer signatories and more than $1,000,000 of funds in Costa Rica, and secured a full-penalty waiver.

- We successfully represented high-net-worth international taxpayers after their CPA fumbled an audit which left taxpayers with nearly $1,000,000 in penalties, and secured both spouses’ acceptance into the IRS Domestic Offshore Streamlined Program.